Rate cut unlikely as RBI sees more risks on inflation front

The RBI in its macroeconomic review, released on the eve of the quarterly monetary policy, asked the government to provide investment stimulus and take aggressive measures to contain fiscal deficit to support recovery in a non-inflationary manner.

It further said growth in the current fiscal is likely to be below the reduced potential of 7.5 per cent because of "global headwinds, inflation and policy uncertainty".

Meanwhile, professional forecasters sponsored by RBI have lowered the growth projections for 2012-13 to 6.5 per cent from 7.2 per cent earlier.

"Monetary policy space needs to be created through fiscal adjustment and structural measures to improve supply conditions..." RBI said.

With regard to rate of price rise, RBI said the near-term outlook on inflation is marked by a slew of upside risks despite significant slowdown in growth. The suppressed inflation, poor supply responses and a weaker monsoon are risks to price-situation, it said.

"Persistence of inflation, even as growth is slowing has emerged as major challenge for monetary policy," it added.

For the month of June, the headline or WPI inflation stood at 7.25 per cent while the consumer price index was at double-digit level of 10.02 per cent.

RBI noted that monetary and liquidity conditions have eased and are not significantly impinging on growth. MORE